BOFI Holdings has a 4:1 stock split set for November 17th. It has moved up nicely, as of late, but last summer this stock was in the $140 range. 4:1 stock splits are not uncommon, but they are a bit rare. Make sense out of that sentence.
The stock is currently $96, up $1.16 today. The November options, again, a few days after the split, are $3.70 X $5.50 for the $100 calls. The $1.05 calls are $1.65 X $3.80. This shows a huge spread between the bid and the ask at both strike prices. When this happens there is a reason. To summarize all of these reasons, they could be categorized as this: The Option Market Makers are fearful. That is why they sell them at a real high price but are only willing to pay you peanuts when you sell.
When this happens, I check the open interest, and surnuff, there are only 600 plus contracts of the $100s. Still that is not bad, as OI goes. This is worthy of a practice trade. Let’s buy ten contracts at $4.20, assuming we can get them at that price in the spread. FYI, the $105 calls may be a better deal, but the stock would have to really move.
We’ll follow this one and see what we can learn. It’s all about improving our skills.
This is Stock Split Strategy #3, the rolling pattern before the split, but after the announcement. We're getting ready for Strategy #4, the Rally Into the Split.
Learn how to play these by reading my book, STOCK SPLITS. It's currently FREE. Go to wadecook.org.